If you’re starting a business in Idaho, one of the first decisions is choosing a business structure and many entrepreneurs in the state opt for a sole proprietorship due to its simplicity.
In fact, out of the 200,455 small businesses in Idaho, 130,061 are sole proprietorships, according to SBA and IRS statistics. With approximately 65% of businesses structured as sole proprietorships, it is a very popular legal entity chosen by business owners in the state.
In this guide, we will walk you through the basics of setting up a sole proprietorship in Idaho. We’ll explain what a sole proprietorship is, highlight its advantages and disadvantages, and provide a step-by-step guide to getting registered.
What is a Sole Proprietorship?
A sole proprietorship is a type of business structure owned by a single individual. It’s the simplest form of business where the owner is the business. Other types of business structures include general partnerships, corporations, and Limited Liability Companies (LLCs). Each of these has its unique characteristics, benefits, and drawbacks.
Sole Proprietorship Advantages
Simplicity and ease of formation: Launching a sole proprietorship in Idaho is straightforward. No formal business registration is required – just start operating. This saves time and frustration.
Inexpensive to form: Starting a sole proprietorship means no filing or legal costs. Unlike the state filing fees needed to create an LLC or corporation, only basic business registration fees apply.
Control: As the sole owner, you have complete control over all decisions and operations without consensus from partners or shareholders.
The simplicity and low costs make a sole proprietorship appealing to many new Idaho business owners. Next, we’ll explore the disadvantages.
Sole Proprietorship Disadvantages
Unlimited personal liability: This is a major downside. As a sole proprietor, you are personally liable for all business debts and legal obligations. This means that if your business is sued or cannot pay its debts, your personal assets may be at risk.
Difficulty raising capital: Compared to other business structures, sole proprietorships may face challenges when it comes to raising capital. As an individual owner, you are limited to loans.
Limited options for fringe benefits: Sole proprietors have fewer options for tax-advantaged employee benefits than other entities.
If liability protection is important to you, forming an LLC in Idaho might be a better choice. A Limited Liability Company provides limited liability protection, separating your personal assets from your business’s debts and liabilities.
Related: Idaho LLC Overview
Steps to Start a Sole Proprietorship in Idaho
While there is no formal registration requirement for sole proprietorships in Idaho, it’s still important to follow a few steps to legally set up your business. Here’s a step-by-step guide:
Step 1: Choose a Business Name
When you’re starting a sole proprietorship in Idaho, you have two options for your business name:
- Your full legal name: If you go this route, you don’t need to file any additional paperwork for the name itself. So, if your name is John Smith, you could simply operate your business as John Smith.
- Assumed Business Name: If you prefer to operate under a name that’s different from your legal name, you’ll need to register it as an assumed name (also referred to as a “Doing Business As,” DBA, Trade Name, or Fictitious Business Name”)
For instance, let’s say you’re John Smith, but you want to run a landscaping business called “Mountainview Lawns.” “Mountainview Lawns” would be your trade name.
When you’re picking out a business name in Idaho, it’s a good idea to do a name search first. This helps you see if another business in the state is already using the name you have in mind or something very similar. For sole proprietorships, you can actually choose a name that’s already in use. But if you plan on setting up a corporation or LLC down the line, you’ll have to pick a unique name that no other business is using.
Related: How to do an Idaho name search
Step 2: File the Certificate of Assumed Business Name
If using a business name, you will need to fill out the Certificate of Assumed Name Form with the Idaho Secretary of State per Idaho Code 30-21-805. This is the paperwork that lets you operate under your chosen business name. The form asks for basic details like the name you want for your business, your address, and what your business will do.
The information you put on the form is public. So, if you run your business from home and use your home address, or don’t want your boss to see that you have opened a business, know that your information will be publicly accessible. It’s something to think about if privacy is a big concern for you.
Also, the Assumed Business Name Certificate does not have a permanent validity. It must be renewed every five years. Failure to renew could result in the cancellation of your business name registration.
Step 3: Obtain Necessary Business Licenses
As a small business owner in Idaho, you may need to obtain certain business licenses or permits depending on the nature of your business and its location, so it’s important to research and understand your particular requirements.
A few common a business may need to register for include:
Local business licenses: Registering only a business name does NOT create a legal business entity or a business license. Unlike some states, Idaho doesn’t have a state requirement for a business license, but many cities within Idaho have their own requirements. Depending on where your business is located and what it does, you may need to acquire a general business license from your city or county clerk’s office. For instance, if you’re operating a childcare facility within the city limits of Boise, you will need a business license from the city.
Industry licenses: Some professions and business types require specific licenses or permits. For example, appraisers, restaurants, accountants, and many others must meet specific licensing requirements.
Sales tax permit: If you’re selling goods or certain services in Idaho, you’ll likely need to get a Seller’s Permit from the Idaho State Tax Commission. This allows you to collect sales tax on taxable sales.
Employer Identification Number: An EIN (sometimes referred to as a tax ID number), on the other hand, is like a Social Security Number for your business. You’ll need one if you plan to hire employees. You can get an EIN for free from the IRS, and it’s a fairly straightforward process.